International Flavors & Fragrances Inc. Q2 FY2025 earnings call

• Achieved 3% sales growth and 7% adjusted operating EBITDA growth in the first half of 2025. - Completed divestitures of Pharma Solutions, Nitrocellulose businesses, and Soy Crush, Concentrates and Lecithin business to Bunge. - Reduced net debt-to-EBITDA to 2.5x, ahead of target. - Announced a new $500 million share repurchase authorization. - Focus on products with differentiated innovation to enhance margins, aiming for mid-teens EBITDA margin goal for food ingredients business. - Strengthening commercial and R&D pipelines, with expected impact in 2026 and full benefit in 2027.

Pharma Solutions: Had a strong month with sales of $103 million, a 21% year-over-year increase and 5% profitability growth; divested on May 1, so this is the last time it's reported. Taste: Sales were $631 million, a 6% increase, driven by strong commercial performance in Latin America and Europe, Africa, Middle East regions; adjusted operating EBITDA totaled $125 million, a 3% increase from prior year; first half had 6% sales growth and 12% adjusted operating EBITDA growth. Food Ingredients: Sales were $850 million, a 1% increase from prior year, driven by growth in inclusions, emulsifiers, etc.; adjusted operating EBITDA grew 21% due to volume, favorable net pricing, and productivity. Health & Bioscience: Grew 4% in the quarter, with broad-based growth led by Health, Food Biosciences, and Animal Nutrition; adjusted operating EBITDA was $151 million, a 3% increase. Scent: Net sales were $603 million, up 1% year-over-year; Fine Fragrance had double-digit growth, Consumer Fragrance had low single-digit growth, Fragrance Ingredients down due to commodities.

• Full year 2025 sales expected to be in the range of $10.6 billion to $10.9 billion, reflecting lower end of 1% to 4% currency-neutral sales growth guidance. - Adjusted operating EBITDA target is $2 billion to $2.15 billion, reflecting currency-neutral growth of 5% to 10%. - Second half growth expected to moderate, particularly in Q3 due to strong year-ago comparison; Health & Biosciences, especially Health, expected to see negative growth in Q3; Pharma Solutions fully excluded from results in Q3, causing step down in absolute EBITDA levels.

• Macroeconomic uncertainty and challenging operating environment. - Tough year-ago comparisons in Q3, creating headwinds. - Softness in H&B, particularly health, leading to potential negative growth in Q3. - Challenges in fragrance ingredients with commodities facing low-cost competition and unfavorable net pricing.

Q: On the divestiture to Bunge, can you walk through the strategic rationale? Any dissynergies that you see and help us size the business from a margin perspective?

A: Erik Fyrwald said the sold soy crush, soy protein concentrate and lecithin products were commoditized, better run by Bunge, low single-digit EBITDA margins for IFF, distracting from differentiated isolated soy protein business, improving Food Ingredients margins and allowing focus on key areas.

Q: On Food Ingredients, when do you expect to complete your evaluation of strategic alternatives? And if you do decide to pursue a sale of this business, is any portion of that could be retained going forward? And lastly, do you still expect that there would be strong interest in interest in this asset amongst strategics and private equity?

A: Jon Erik Fyrwald said they're making good progress, expect to update on fourth quarter earnings call early next year, clarity in 2026, and there's already strong proactive interest from private equity and strategics.

Q: Could you just give us more color on how the quarter unfolded from a monthly cadence standpoint and also what your embedded volume assumptions are for the back half of the year by segment. You called out challenges. Can you be a little bit more specific as it relates to what specific challenges you're referring to?

A: Michael DeVeau said Q2 operating environment consistent with expectations, all businesses delivered growth on volume perspective, more cautious in second half outlook due to tough comps in Q3 and weakening trends in H&B, specifically health expected to have negative growth in Q3.

Q: I was wondering if you could specifically talk about the outlook for Scent in 3Q and 4Q. You've clearly seen divergent trends between growth in end markets between Fine Fragrance and Consumer versus the ingredients, which looked like it was more of a drag. So wondering if you see that drag in ingredients continue into the back half or if that's more contained within the second quarter? And then similarly, your views around growth for some of the stronger areas you've seen in that segment?

A: Michael DeVeau said Fine Fragrance expected to have good strong performance through balance of year, Consumer Fragrance expected to have low single-digit growth in second half, Fragrance Ingredients expected to be pressured in back half with commodity portion under pressure, specialty ingredients portion growing but slowly.